Series HH bonds paid out cash to investors. They worked differently than Series EE savings bonds, which instead added the interest income back to the principal value of the bond.

The interest income on the Series HH bonds was deposited into the bond owner's bank account every six months, providing a steady source of investment income that could be spent while the bond was still held. Backed by the full faith and credit of the United States Government, these bonds were the perfect way for risk-averse investors to live off their money.

With Series EE savings bonds, you don't have to pay taxes on the interest income that is added to your bonds each year. Instead, you can wait until the final maturity and pay all of the tax at once, when you cash the bond. By exchanging the Series EE savings bonds for Series HH savings bonds, you could have deferred all of those taxes for up to an additional twenty years! This was an enormous benefit, giving investors far more money to work for them. It was a perfect example of a program that rewarded good behavior that benefited the nation.

The Interest Rate on Series HH Savings Bonds

The interest rate for the Series HH savings bonds was set every six months and fixed on the day you purchased your bond. The rate was locked in for 10 years. Interest rates reset on the 10th anniversary of the Series HH bond's issue date. Series HH savings bonds reached maturity and stop earning interest income altogether on the twentieth anniversary of the issue date. Interest income received from Series HH savings bonds must be reported in the tax year it is received, but it is not subject to state and local taxes.

Like the Series I savings bonds, Series HH savings bonds can be redeemed for full face value at any time. All you need to do is walk into a bank and cash them in. However, it's worth checking to see if you've been receiving the regular interest payments or if interest has been deferred. If the interest was being deferred, you may be on the hook to pay taxes on those accumulated funds. Taxes become due after 20 years when the bonds are no longer generating interest.

The End of the Series HH Savings Bond Program

On September 1st, 2004, the United States Treasury Department stopped offering Series HH savings bonds to investors, ending a successful and well-regarded program that rewarded saving, thrift, and investment. The program has not been replaced with anything comparable, leaving investors to look to the private market to find good bond investments.

There are still many Series HH savings bonds outstanding but investors who are lucky enough to own them will find themselves without a comparable alternative unless Congress acts by the time the last ones mature in the year 2024.